Wednesday, October 28, 2020

CFTC Chairman Tarbert issues directive to agency personnel constraining use of staff letters and guidance

By Brad Rosen, J.D.

In a concise and sharply worded statement, CFTC Chairman Heath Tarbert instructed CFTC staff to limit the use of no-action, interpretive, and exemptive letters to those relatively narrow sets of circumstances described in his directive. Moreover, the chairman mandated that staff utilize the notice-and-comment rulemaking process for all other policymaking initiatives. Notably, CFTC staff has issued 33 no-action letters in 2020 year-to-date according to the CFTC’s website. Staff has not issued any interpretative or exemptive letters during this time period.

General rulemaking takes precedence. The directive instructs CFTC staff to ensure that staff letters are limited to those circumstances that are not suitable for a general rulemaking. In support of this view, the chairman noted that the views articulated in staff letters, with the exception of exemptive letters, are informal and advisory. Moreover, staff statements are not binding on the Commission itself. According to the directive, staff letters should supplement, rather than replace, rulemakings.

No-action letters should not establish a new Commission policy. The directive instructs CFTC staff responding to a no-action request to consider whether rulemaking would be a more appropriate vehicle for responding to the inquiry where the noted situation is encountered on a repeated basis and has industry-wide implications. Chairman Tarbert identified three situations where no-action relief should be granted. Those include:
  • Transitional compliance relief. A situation where market participants may experience operational or other difficulties that impede timely compliance with the CEA or a new or amended Commission regulation.
  • "Square Peg" relief. A situation where market participants’ transactions or activities may raise a unique issue that is not contemplated by the CEA or CFTC regulations, or the application of CFTC regulations to a transaction or activity may lead to unintended consequences.
  • Extraordinary circumstances. A situation where market participants may face challenges in complying with the CEA or CFTC regulations during a market crisis or another extraordinary circumstance.
The case of interpretive letters. The directive notes that like a no-action letter, an interpretive letter is binding on only the issuing division or office. However, unlike a no-action letter, an interpretive letter may be relied upon by the public. The directive underscores that an interpretive letter be derived from a specific statutory provision or regulation and that it may be used to add meaning or gloss to underlying requirements. As in the case of a no-action letter, the directive provides that an interpretive letter should not set new policy or otherwise alter the rights and obligations of any person. If that was the case, rulemaking would be more appropriate than utilizing an interpretive letter.

Exemptive letters should apply only to the party requesting relief. An exemptive letter is a written grant of relief issued by a division or office when the Commission itself has exemptive authority that has been delegated to the staff. As opposed to other staff letters, an exemptive letter binds the Commission. Only the addressee of the letter may rely upon the relief. The directive instructs CFTC staff that in the event a potential exemptive letter would provide relief that could be applicable to parties other than the requestor, or the conditions of relief are broader than existing regulations, rulemaking would be more appropriate.

A final declaration. At the conclusion of the statement, Chairman Tarbert indicated that the guidelines set forth in directive shall remain in effect until augmented, amended, or withdrawn by the chairman himself, the Commission, or any future chairman or Commission.